Industrial Equipment 101: A Simple Guide

Key Calculations For Comparing Rental Versus Purchase Costs Of Heavy Equipment

When your company has agreed to take on some significant construction projects and you find yourself in need of some heavy equipment that you don't yet have access to, it's important that you determine whether you're going to buy or rent that equipment. In order to establish which is going to be the most cost-effective option, you need to take the time to do some calculations. Here's a look at what you need to consider and how to do the math.

Identify The Total Cost

You can't adequately compare the expenses for renting versus buying your heavy equipment until you know what the actual total cost will be for each option. When you calculate the total cost associated with the rental or purchase, you'll get a clearer picture of which one might be more cost-effective for your company.

To calculate the total cost of purchasing heavy equipment, you start by identifying the full purchase cost. From there, you should add in the cost of delivery if there is a fee. Finally, you should include the cost of equipment insurance and estimated maintenance costs. If you're not sure about the maintenance costs, your equipment retailer should be able to help you estimate it. Subtract the estimated resale value of the equipment to determine the complete ownership cost.

Calculating the total cost of heavy-duty equipment rental is a bit simpler. All you need to do is determine how long you'll be renting the equipment for and multiply your rental rate (whether by day, week, or month) by that timeframe. Include any delivery or pickup fees if they are included in the rental contract and that tells you your total rental cost for the project.

Consider The Cost Per Day

When you're looking at the total cost, it can be a bit hard to compare them equally since the total ownership cost accounts for the full life of the equipment versus simply keeping it for a short period. To try to get a more comparable look at those costs, you can calculate your cost per day of owning versus renting the machines.

To do this, you need to determine how many days your project is going to take so that you know how many days you'll have the rental equipment. Then, you divide the total rental cost by the number of days you'll have the equipment to arrive at your total daily rental cost.

The daily cost of ownership is equally simple to calculate. You simply divide the total cost of ownership by the number of days that you anticipate owning the equipment. When you know the daily cost of both rental and ownership, you can determine which one is more cost-effective over the necessary period.

Compare The Cost Per Operating Hour

When you are really looking to get a precise comparison of the cost of buying versus renting your heavy equipment, you should also consider the cost per operating hour for the machines. After all, if you're buying the equipment based on a single job, you need to know how many more hours of use you'll need out of the machine to make it comparable to the rental.

To determine the rental cost per operating hour, divide your total rental cost by the number of hours you anticipate the project to take. That way, you know how much you're paying per hour for the project you need to do.

The cost of ownership per operating hour is also easy to calculate. To determine the cost of ownership per operating hour for the single project at hand, divide the total cost of ownership by the number of hours the project will take. 

If you want to determine how many operating hours you'd need to compare to the cost of rental per hour that you calculated, divide the total ownership cost by the cost per rental hour to determine how many hours you'll have to use your newly purchased machine to make it comparable.